Tuesday, November 29, 2022

Israel central bank boosting preparations for digital currency

Israel central bank boosting preparations for digital currency

JERUSALEM (Reuters) - Israel's central bank said on Tuesday it was once again considering issuing a digital shekel that would create a more efficient payments system.

The Bank of Israel began to consider the possibility of issuing a central bank digital currency (CBDC) in late 2017 but a year later a team established to study the matter recommended against issuing a CBDC in the near future.

Now, the bank said that due to rapid developments in the digital economy and with other central banks considering digital currencies, the Bank of Israel "is accelerating its research and preparation" for a potential issuance of a digital shekel.

The Bank of Israel is asking for public comments on the matter through July and has established a panel led by its deputy governor to study its feasibility and how a digital shekel would benefit the economy.

"Similar to many other central banks, the Bank of Israel has not yet decided whether it intends to issue a digital currency," it said. It noted, however, that central banks in major economies have boosted research on CBDCs as another means of payment and creating a new technology to keep up with the digital economy.

The central bank, it added, is preparing an action plan should "conditions develop in the future that would lead to a Bank of Israel assessment that the benefits of issuing a digital shekel outweigh the costs and potential risks".

Benefits of a digital shekel include reducing the use of cash in the fight against the "shadow economy", creating an efficient and cheaper infrastructure for cross-border payments, allowing for using a digital form of payment that is private, and ensuring a backup for the payments system in case of an emergency breakdown, the central bank said.

Should the Bank of Israel go ahead with its plan, it would implement it in two possible ways -- providing an app by which people could transfer funds from their bank accounts to the central bank, or using intermediaries such as commercial banks, financial tech firms and global companies like Apple and Google.

Consequently, the central bank said, digital currencies could pose a risk for the banking system and damage banks' abilities to issue credit if people transfer funds from their accounts. The bank said it would study whether this risk was substantial and could ultimately lead to a cap on the amount people were allowed to transfer.